The influence of globalisation on automobile manufacturers in South Africa / Kalanther Ishaq
The South African automobile manufacturing industry has grown since 1920 from an import and assembly industry to an import-substitute industry. From the inception, the automobile manufacturing industry developed under the careful monitoring of the Government to obtain the objectives of the economy of the country. Until 1960, all automobile manufacturers imported completely knocked down sets from abroad to assemble vehicles. These excessive imports drained the South African foreign reserves. By 1961, the South African Government had introduced local content programmes to stop / reduce importations in order to save foreign currency and develop the industry into a self-sufficient manufacturing industry. Each phase of the local content programme (six in total) had both advantages and disadvantage but contributed significantly to the growth of the industry. Existing manufacturers received significant protection from both new manufacturers and new-model entry into the market by means of high tariff barriers. New competition in the form of new manufacturers or imported products was relatively small with little risk for existing manufacturers. The country's automobile manufacturers were growing and during this period reported profits. By 1990 the globalisation process had accelerated more than ever before. Restructural changes took place in most manufacturing industries due to the globalisation process. Most countries have to a large extent been feeling the influence of globalisation in the manufacturing sectors since the early 1990s. Many changes took place with regard to technology, production methods, labour utilisation and marketing of the manufacturing sectors due to the globalisation process. Since 1994, the Uruguay Round Agreement and the Marrakech Agreement were established under the World Trade Organisation (WTO) that governs world trade. Under these agreements all countries are forced to free up their markets through tariff reduction on imports. South Africa had to reduce its tariff on imported goods and vehicles according to the Uruguay Round Agreement, as the country is one of the signatories to this agreement. According to WTO obligations, a comprehensive tariff reduction was introduced on the automobile manufacturing industry through the implementation of the Motor Industry Development Programme (MIDP) in September 1995 in South Africa. This proved to be a turning point, with South Africa becoming increasingly integrated into the global economy. The South African automobile manufacturing industry is currently one of the largest industries that have embraced the realities of globalisation. ill A large number of transnational corporations (TNCs) and multinational corporations are entering the domestic and regional markets with highly innovative, quality and low-priced vehicles without any barriers. The trade liberalisation process has increased competition and imports, creating high pressure and influence on the performance of automobile manufacturers in South Africa in terms of production volume, marketing, employment level and profits. Global competitors have eroded the market share, while domestic sales for vehicles have declined due to imported small, affordable and sophisticated car models. The total accumulated net profits of all seven manufacturers in the country have declined significantly after the introduction of trade liberalisation in 1995. The above factors motivated the investigation of the influence of globalisation on the overall performance of automobile manufacturers in South Africa. Based on a comprehensive literature review and empirical analysis, the following conclusions were reached. The majority of automobile manufacturers have sufficient internal strengths and resources to face global competitors. The majority of automobile manufacturers cannot offer low-priced vehicles to customers compared with global competitors in the liberalised marketplace. This has a seriously negative impact currently, keeping the industry far behind from the competitive position. Lack of automation in production, lack of investment to introduce computerised and advanced technology in the production process, poor production volume, inability to reach economies of scale, high production costs and lack of teamwork in production are factors that hamper automobile manufacturers in South Africa. These manufacturers are unable to increase their sales in the domestic market to reduce production costs, as low-priced imported vehicles have eroded the domestic market. At the same time, current global market trends in terms of over-capacity, small and low-priced and differentiated models with sophisticated technology have significant negative effects on the performance of automobile manufacturers in South Africa. All these trends will affect the investment, production volume, market share and profits of local manufacturers and severely threaten their survival over the long term. A quality product at a lower cost is an important weapon to overcome these problems and meet all the above threats in the marketplace. Finally, a competitive advantage umbrella model consisting of the most important aspects is given where the automobile manufacturer has to concentrate intensively and immediately on improving their competitive position to overcome the negative influence of globalisation in future.
- ETD@PUK